Bright future predicted for banks in Asia

PUBLISHED : Tuesday, 06 December, 2011, 12:00am
UPDATED : Tuesday, 06 December, 2011, 12:00am


Commercial banking in Asia will remain buoyant, lifted by the region's demand for financial services, global advisory firm McKinsey & Co said yesterday.

The firm polled chief financial officers from multinational companies, medium-sized companies and banks in 13 Asian countries. It predicted that corporate and investment banking revenues in the Asia-Pacific region would rise to US$792 billion in 2015 from US$442 billion last year.

It said corporate banking would continue to generate more revenue than investment banking, rising to an estimated US$634 billion in 2015 from US$360 billion last year.

'Banks that are more towards the integrated or universal model will have an advantage in capturing the growth in Asia,' McKinsey director Emmanuel Pitsilis said. Lending and transaction services including foreign exchange and trade finance would be in demand because Asia was so focused on trade, he said.

Pitsilis said European banks, which faced higher costs in US dollar financing and pressure to meet tougher liquidity requirements, could be withdrawing from the US dollar trade finance market.

European banks have long been active in the trade financing market, investment bank Morgan Stanley said, with French banks representing about 25 per cent of the US$613 billion global market last year.

Huw Van Steenis, who wrote the Morgan Stanley report, said trade finance would be one of the biggest risks to the global market when the Euro1.5 trillion (HK$15.68 trillion) to Euro2.5 trillion of deleveraging took place among European banks.

The deleveraging, he said, would hurt European banks' ability to be global lenders, and investors would remain reluctant to provide cheap US dollar funding to European lenders.

Steenis said local banks and global banks like HSBC, Standard Chartered and JP Morgan were likely to pick up the trade financing business.

Asian and global banks were also likely to pick up assets from European banks in a variety of areas, including syndicated lending and commodity financing.

ANZ economist Raymond Yeung said European banks could no longer afford to keep their 'golden nest eggs' in Asia.

'Asia is perceived as a high-risk, high-return market,' Yeung said.

'European banks need to control their cost of capital. They are going to sacrifice their businesses in Asia, even when Asia is the major growth engine.'